This morning brings bad news for parent companies of some mutual fund firms. New York Attorney General Andrew Cuomo is reportedly investigating eight banks to find out whether they misled rating agencies over mortgage securities.

Though the probe does not target the banks' mutual fund businesses, it could set off a chain of events that could potentially affect those banks' mutual fund arms. Investment advisers cannot have a guilty conviction for fraud. This means that should any of those banks be convicted of fraud, that bank will have to get out of the fund business.

Among the eight banks Cuomo is investigating, four currently have mutual fund businesses in the U.S.: Goldman Sachs, UBS, Deutsche Bank and Morgan Stanley.

Morgan Stanley won't be in the fund business for long, though, with its deal with Invesco set to close June 1.

The four other banks are Credit Suisse, Credit Agricole, Citigroup, which got out of the mutual fund business via its asset swap with Legg Mason in 2005, and Merrill Lynch, which sold its fund business to BlackRock in 2006. 

Edited by: Armie Margaret Lee


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